Slow Market Can Mean Big Money: Keep Up Your Portfolio by Investing in Businesses

Whether you’re an investor, a holiday home owner, a renter or still a student, chances are that you are up to scratch on the current real estate market: it has changed dramatically, to say the least.   

Yes, after several years of glorious capital appreciation and attractive loan products, the market has changed from a seller’s to buyer’s market, mortgages are changing structure and foreclosures are forecasted to be at a ten-year high. Home prices have dropped for the fourth quarter in a row, according to CNNMoney.com staff writer Les Christie, and though the National Association of Realtors predicts a slight increase in home prices for spring of 2008, it is obvious that investors are thinking twice about sinking their funds into more property. 

The seasoned investor’s portfolio usually includes an assortment of well-researched stocks, bonds, commodities and real estate.  With levels of uncertainty vacillating with each new public report, investors can easily get sidetracked watching the market numbers they have set at the bottom of their computer screens or PDA’s, rather than trying to use a slow market to their advantage by diversifying. Business acquisition is not a new concept, nor is it a practice limited to only high-liquidity investors or corporations.  Most business transactions involve small businesses (less than 100 employees) and good leverage, such as seller financing.   

A business is a living, breathing entity, dealing with customers, vendors and staff.  And though the risk may be higher than purchasing a partially-leased piece of commercial property, the return on investment (ROI) can be significant if you invest in a business wisely.   The success of a business acquisition goes down to several factors: the investor’s liquity to put down, desired ROI, and time, which can often be the largest factor.  Some businesses are best owner-operated, meaning that the owners remove the management and work the business themselves.  Other businesses have been built-up and are more turn-key, allowing a purchaser the option of owning the business absentee or semi-absentee, meaning that with the model and staff currently in place, the business can run itself quite efficiently.  

If selected properly, absentee-owner opportunities can afford the purchaser passive income, though it does come with a higher price tag – because the investor is willing to pay more to acquire the business with solid management in place running the day-to-day operations.  

Some businesses have an historical NOI that would justify an all-cash purchase but not sustain a long-term loan.  Others have an historical NOI that would cover the debt load and also put money in your pocket. With down payments of 25-50%, it is becoming increasingly easier to secure a loan from a bank with proper documentation, and seller financing has been a fixture throughout the development of the industry, which can often be the most favorable term to go for. 

Whether the strategy is to acquire a business to generate regular returns or to build it up and then turn it, it is important that investors start looking into this growing industry.  The brokerage of businesses has been long established and very successful in Western European and British markets, and it has only been the last 30 years that the industry has grown into maturity in the States.  The framework to support and educate investors is there, so take advantage of the resources available to you.   

While some may sit back to watch and hope the real estate market will turn, you may be up considerably by thinking outside of the box and turning a slow year into one of significant financial discovery!

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